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ACTIVITIES
Define staffing needs
Define deliverables
Operational trigger and signals
Determine events that
require response
Determine appropriate
response procedure
for each type of event
Define internal and external
coordination
Determine information
system needs
Determine communication
Classify
needs events
Identify operational
problems/improvements
opportunities
4-1
Recognize Event
Implement Solution
ACTIVITIES
Identify event
Determine nature of event
Coordinate with functions to determine
alternative actions
Decide how to respond to the event
Determine implementation steps
Coordinate with business process
owners or function managers
processing the request
Respond to event
Monitor the evolution of the event
Record event log
Keeps customer informed
4-2
Measure performance
Sales
Increase productivity
Reduce freight and indirect labor, warehouse costs
Optimize physical network/facilities
Reduce order management costs
Reduce information system costs
Reduce human resources cost/improve effectiveness
Reduce general overhead/management /administrative costs
Reduce purchased goods inventories
Reduce work in process inventories
Reduce finished goods inventories
Cost of
Goods sold
Total
Expenses
Inventory
Fixed
Assets
4-3
Sales
Gross
Margin
Net Profit
Cost
of
Goods
sold
Total Expanses
Inventory
Taxes
Current assets
Total Asset
Fixed assets
Other current
assets
EVA
Cost of Capital
%
4-4
- Price
- Product quality
- Service
Price
Product
Promotion
Physical Distribution
Customer service
here
4-5
Pretransaction
elements
Written statement
of policy
Statement in hands
of customer
Organizational
structure
System flexibility
Technical services
Transaction
elements
Stockout level
Ability to back
order
Elements of order
cycle
Time
Transship
System accuracy
Order conveniences
Product substitution
Posttransaction
elements
Installation, warranty
alterations, repairs,
parts
Product tracking
Customer claims,
complaints
Product packaging
Temporary
replacement of
product during repairs
4-4
12% Damaged
goods
7%
Other
6%
Frequently cut
items
44%
Late delivery
CR (2004) Prentice Hall, Inc.
4-7
2%
Refused to
support
promotion
16%
Discontinued
items
18%
Stopped all
purchases
with supplier
9%
Refused to
purchase new
items
26%
Called in
salesman or
manager
4-8
On-time delivery
Order fill rate
Product condition
Accurate documentation
CR (2004) Prentice Hall, Inc.
4-9
4-10
4-11
Customer
order
transmittal
CUSTOMER
Retail outlet
WAREHOUSE
Order processing
and assembly
Transmittal of
backorder
items
Order
delivery
Express
order
delivery
CR (2004) Prentice Hall, Inc.
FACTORY
Order processing,
assembly from stock,
or production if no
stock
4-10
4-13
Service Observations
The dominant customer service elements
are logistical in nature
4-14
Modeling a Sales-Service
Relationship
A mathematical expression of the level of service
- Two-points method
- Before-after experiments
- Game playing
- Buyer surveys
CR (2004) Prentice Hall, Inc.
Remember
Revenue in
ROLA
4-15
Sales-Service Relationship by
the Two-Points Method
Sales
Approximation by
two-points method
0
0
CR (2004) Prentice Hall, Inc.
Sales
Threshold
Diminishing returns
Decline
Sales-Service Relationship
Range of
transition
Range of
transition
0
0
CR (2004) Prentice Hall, Inc.
4-15
4-18
Costs or sales
Profit
maximization
Logistics
costs
4-17
4-20
4-21
zU
zL
1.125-1.08
1.17 -1.125
1.23 -1.17
1.28 -1.23
1.34 -1.28
1.41 -1.34
1.48 -1.41
1.55 -1.48
1.65 -1.55
1.75 -1.65
1.88 -1.75
2.05 -1.88
2.33 -2.05
=
=
=
=
=
=
=
=
=
=
=
=
=
z
0.045
0.045
0.05
0.05
0.06
0.07
0.07
0.07
0.10
0.10
0.13
0.17
0.28
4-22
Change in
safety
stock cost, C
300
$/year
250
200
150
100
50
0
87-86 88-87 89-88 90-89 91-90 92-91 93-92 94-93 95-94 96-95 97-96 98-97 99-98
4-23
Optimizing on Service
Performance Variability
Setting service variability according to Taguchi
Cost penalty, L
L = loss in $
k = a constant to be determined
y = value of the service variable
m = the target value of the service variable
Service penalty only if outside this
rangeTraditional
y
CR (2004) Prentice Hall, Inc.
4-24
Optimizing on Service
Performance Variability (Contd)
Setting the allowable deviation from the target service level m is
to optimize the sum of penalty cost for not meeting the service
target and the cost of producing the service.
4-25
Find k
L k ( y - m )2
3 k( 10 - 0 )2
3
0.03
2
10
and y if m is taken as 0
k
y -0
Cost penalty, $
40
30
Delivery service, min
0.15
2.5 minutes
2(0.03)
No more than 2.5 minutes should be allowed from the 30minute delivery target to minimize cost.
4-26
4-27
Service Contingencies
System Breakdown Actions
Insure the risk
Plan for alternate supply sources
Arrange alternate transportation
Shift demand
Build quick response to demand shifts
Set inventories for disruptions
Product Recall Actions
Establish a task force committee
Trace the product
Design a reverse logistics channel
CR (2004) Prentice Hall, Inc.
4-28